Don’t wait for the OCR. Here's how to slash thousands off your mortgage
Wednesday, 8 April 2026
It’s OCR week again, and the uncertainty bubbling through geopolitics has left our top economic thinkers scratching their heads.
The range of senior economists and executives contributing to the New Zealand Institute of Economic Research widely agree that Reserve Bank Governor Dr Anna Breman will keep the OCR where it is today at 2.25%.
What they can’t agree on is where those interest rates will be 12 months from now.
While the vast majority of Shadow Board members picked an OCR ranging from 2.5% to 3%, some anticipate it could be as high as 5% within a year.
The point here is not to add to your level of anxiety, but rather to show that even some of the smartest people in the room don’t have a definitive answer for when rates should rise or how high they should go.
As BNZ head of research Stephen Toplis said in his notes, “It’s impossible to say anything sensible at this stage other than that the spread of potential outcomes is one of the greatest that we have ever seen.”
In these times of enormous uncertainty, the best thing we can do is to focus on the things that we can control rather than mull endlessly over where interest rates may go in the future.
Stop being a passenger to your interest rate
The first thing you should know is that setting up your mortgage doesn’t just come down to picking a rate and sticking with it.
A suite of clever tools can slash years off your mortgage and liberate you from high interest rates sooner.
Independent government-funded site Sorted notes that revolving credit and offset loans are both useful tools that you can use to reduce your overall interest payments.
Understanding how these tools work can save you thousands and cut years off your mortgage.
Revolving credit
Revolving credit functions like a giant overdraft. Rather than paying a set interest rate on your loan, a revolving credit account will reduce the amount owed on the loan every time you have money entering your account (for example, your salary). You end up paying less interest because interest is calculated on a daily basis.
This is best explained through an example.
In a standard scenario, a person might have a $500,000 mortgage on a 5% interest rate, with an emergency fund of $20,000 and a base monthly salary of $10,000 (for a couple).
In this situation:
You pay 5% interest on every cent of that $500,000;
Your salary sits idle in a transaction account, doing zero work for you.
If you were to set this up as a revolving credit account, the maths in all these equations starts to change.
The $20,000 emergency fund would immediately be subtracted from the overall mortgage, meaning you would only pay interest on $480,000. This would drop even lower every month once your salary hits the account.
Even though you will spend your salary on bills over the course of the month, it still helps to reduce the overall amount that you’re paying in interest.
In a revolving credit scenario, you forgo interest earned on your savings in order to reduce the amount of interest you pay on your mortgage. In effect, that $20,000 delivers a return of 5% per annum in interest that you don’t have to pay.
Combining your monthly salary and your $20,000 in savings creates a $20,000-$30,000 interest-free shield that allows your money to work harder for you.
This adds up massively. Over the course of a 30-year mortgage, you would end up saving approximately $29,460 in interest payments (for simplicity, the assumption is that interest rates remain steady).
In doing this, you would be able to pay off your mortgage as much as two years earlier.
Offset loan
An offset loan is similar to revolving credit in that it reduces the overall amount that you’re paying interest on, but the way it functions is different.
With an offset loan, you select a savings or everyday account (or a combination of a few) to offset a certain portion of your mortgage.
If you do this, you don’t earn interest on the money functioning in the offset capacity, but you don’t have to pay any interest on that portion of the mortgage.
If you have just $20,000 sitting in an offset account for a year, you could save $1,000 in interest payments. This would leave you around $732 better off every year compared to leaving your savings in a standard account (after factoring in the interest and tax you would have otherwise earned).
You can take this even further by steadily paying off the offset section of the loan with any spare money you might have, making it possible to top up the offset component when a mortgage renewal next rolls around.
What’s best for you?
Mortgage adviser Samantha Wilson says it comes down to your personal preference and habits.
“Some clients prefer seeing their savings sitting separately, so an offset works better for them from a behaviour point of view,” she says.
“Revolving credit is great for flexibility. I often recommend having some level of one for unexpected situations or for clients with a variable income, as it helps with cashflow.”
But be careful of falling into bad habits.
Wilson warns that some customers can treat a revolving credit limit as a target, which can hurt them financially.
“A revolving facility does require discipline, but if managed well, it works effectively,” she says.
“An offset, on the other hand, still helps reduce interest, pay down the loan faster and build equity without needing to change spending habits too much.”
The key is talking to your bank or mortgage adviser to see what’s on offer and what would be best for your circumstances. Taking control of your structure is a far better strategy than simply hoping the OCR stays low.
**What’s your mortgage strategy? What have you done to shave time off your term? Let us know in the comments below. *If you’re using the Stuff app on iOS you’ll need to view Stuff.co.nz on a browser to view and post comments.***